Bush is dead wrong
Joseph Stiglitz
Wednesday October 6, 2004
The Guardian
Many around the world are surprised at how little attention the economy is receiving in President Bush's re-election campaign. But I am not surprised: if I were Bush, the last thing I would want to talk about is the economy. Yet many people look at America's economy, even over these past three-and-a-half years, with some envy. Annual economic growth - at an average rate of 2.5% - may have been markedly slower than during the Clinton years, but it still looks strong compared with Europe's anaemic 1%.
But these statistics mask a glaring fact: the average American family is worse off than it was three-and-a-half years ago. Median income has fallen by over $1,500 in real terms, with families being squeezed as wages lag behind inflation. In short, all that growth benefited only those at the top of the income distribution, the same group that had done so well over the previous 30 years and benefited most from Bush's tax cut.
For example, some 45 million Americans have no health insurance, up by 5.2 million from 2000. Families lucky enough to have health insurance face annual premiums that have nearly doubled, to $7,500. Families also face increasing job insecurity. This is the first time since the early 1930s that there has been a net loss of jobs over the span of a presidential administration.
Bush supporters ask: is Bush really to blame for this? Wasn't the recession already beginning when he took office?
The resounding answer is that Bush is to blame. Every president inherits a legacy. The economy was entering a downturn when Bush took office, but Clinton also left a huge budget surplus - 2% of GDP - a pot of money with which to finance a robust recovery. But Bush squandered that surplus, converting it into a deficit of 5% of GDP through tax cuts for the rich.
The productivity growth that was sustained through the downturn presented an opportunity and a challenge. The opportunity: if the economy was well managed, the incomes of Americans could continue to rise as they had done in the 1990s. The challenge: to manage the economy so that growth would be robust enough to create the new jobs required by new entrants to the labour force. Bush failed the challenge, and America lost the opportunity.
True, the economy was stimulated a little by the tax cuts. But there were other policies that would have provided far more stimulus at far less cost. Bush's objective was to push forward a tax agenda that shifted the burden away from those who could best afford to bear it.
Bush's failed policies have cost the economy dearly, and have left it in a far weaker position going forward. The non-partisan Congressional Budget Office agrees that the deficit will not be eliminated in the foreseeable future - or even cut in half, as Bush has promised. Expenditures on which America's future economic health depends - infrastructure, education, health and technology - will be crowded out.
Because fiscal policy did not stimulate the economy, a greater burden was placed on monetary policy. Lower interest rates worked (a little), but for the most part by encouraging households to refinance their mortgages, not by stimulating investment. The increased indebtedness of households is already leading to higher bankruptcy rates, and will likely dampen the recovery.
National debt too has risen sharply. The huge trade deficit provides the spectacle of the world's richest country borrowing almost $2bn a day from abroad, contributing to the weak dollar and representing a major source of global uncertainty.
There might be some hope for the future if Bush owned up to his mistakes and changed course. But no: he refuses to take responsibility for the economy, just as his administration fails to take responsibility for its failures in Iraq. In 2003, having seen that its tax cuts for the rich had failed to stimulate the economy, the administration refused to revise its strategies.
In August, I joined nine other American Nobel prize winners in economics in signing an open letter to the public. We wrote: "President Bush and his administration have embarked on a reckless and extreme course that endangers the long-term economic health of our nation ... The differences between President Bush and John Kerry with respect to leadership on the economy are wider than in any other presidential election in our experience. President Bush believes that tax cuts benefiting the most wealthy Americans are the answer to almost every economic problem."
Here, as elsewhere, Bush is dead wrong, and too dogmatic to admit it.
Joseph Stiglitz is professor of economics at Columbia University and a Nobel prize winner
Joseph Stiglitz
Wednesday October 6, 2004
The Guardian
Many around the world are surprised at how little attention the economy is receiving in President Bush's re-election campaign. But I am not surprised: if I were Bush, the last thing I would want to talk about is the economy. Yet many people look at America's economy, even over these past three-and-a-half years, with some envy. Annual economic growth - at an average rate of 2.5% - may have been markedly slower than during the Clinton years, but it still looks strong compared with Europe's anaemic 1%.
But these statistics mask a glaring fact: the average American family is worse off than it was three-and-a-half years ago. Median income has fallen by over $1,500 in real terms, with families being squeezed as wages lag behind inflation. In short, all that growth benefited only those at the top of the income distribution, the same group that had done so well over the previous 30 years and benefited most from Bush's tax cut.
For example, some 45 million Americans have no health insurance, up by 5.2 million from 2000. Families lucky enough to have health insurance face annual premiums that have nearly doubled, to $7,500. Families also face increasing job insecurity. This is the first time since the early 1930s that there has been a net loss of jobs over the span of a presidential administration.
Bush supporters ask: is Bush really to blame for this? Wasn't the recession already beginning when he took office?
The resounding answer is that Bush is to blame. Every president inherits a legacy. The economy was entering a downturn when Bush took office, but Clinton also left a huge budget surplus - 2% of GDP - a pot of money with which to finance a robust recovery. But Bush squandered that surplus, converting it into a deficit of 5% of GDP through tax cuts for the rich.
The productivity growth that was sustained through the downturn presented an opportunity and a challenge. The opportunity: if the economy was well managed, the incomes of Americans could continue to rise as they had done in the 1990s. The challenge: to manage the economy so that growth would be robust enough to create the new jobs required by new entrants to the labour force. Bush failed the challenge, and America lost the opportunity.
True, the economy was stimulated a little by the tax cuts. But there were other policies that would have provided far more stimulus at far less cost. Bush's objective was to push forward a tax agenda that shifted the burden away from those who could best afford to bear it.
Bush's failed policies have cost the economy dearly, and have left it in a far weaker position going forward. The non-partisan Congressional Budget Office agrees that the deficit will not be eliminated in the foreseeable future - or even cut in half, as Bush has promised. Expenditures on which America's future economic health depends - infrastructure, education, health and technology - will be crowded out.
Because fiscal policy did not stimulate the economy, a greater burden was placed on monetary policy. Lower interest rates worked (a little), but for the most part by encouraging households to refinance their mortgages, not by stimulating investment. The increased indebtedness of households is already leading to higher bankruptcy rates, and will likely dampen the recovery.
National debt too has risen sharply. The huge trade deficit provides the spectacle of the world's richest country borrowing almost $2bn a day from abroad, contributing to the weak dollar and representing a major source of global uncertainty.
There might be some hope for the future if Bush owned up to his mistakes and changed course. But no: he refuses to take responsibility for the economy, just as his administration fails to take responsibility for its failures in Iraq. In 2003, having seen that its tax cuts for the rich had failed to stimulate the economy, the administration refused to revise its strategies.
In August, I joined nine other American Nobel prize winners in economics in signing an open letter to the public. We wrote: "President Bush and his administration have embarked on a reckless and extreme course that endangers the long-term economic health of our nation ... The differences between President Bush and John Kerry with respect to leadership on the economy are wider than in any other presidential election in our experience. President Bush believes that tax cuts benefiting the most wealthy Americans are the answer to almost every economic problem."
Here, as elsewhere, Bush is dead wrong, and too dogmatic to admit it.
Joseph Stiglitz is professor of economics at Columbia University and a Nobel prize winner
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